Despite several Fed members, such as Bullard, aren’t ready to say inflation reached a top, latest indicators confirm my view that CPI YoY peaked in June at 9.1%.
1. In July, CPI surprised downward
On a YoY basis, U.S. CPI decelerated in July by more than expected, reaching 8.5% YoY (v 8.7%e) and cooling from the 9.1% June advance that was the largest in four decades. On a MoM basis, headline CPI was flat, below the consensus estimate of 0.2%. It was the first downward surprise since August 2021 report. More interesting, unrounded, CPI decreased for the first time since May 2020. Another MoM drop in August, seems likely based on latest developments.
2. Gasoline prices have retraced significantly since mid-June
Last week, the average price of U.S. retail gasoline fell below $4 per gallon for the first time in months. On Monday, data showed retail gasoline prices have been falling for at least 63 days, exceeding the drop seen when pandemic-driven lockdowns crippled economic activity in early 2020. The last time prices plunged for a longer period was 2018.
3. Food prices growth should normalize downward in the coming months
Agricultural commodity prices also dropped sharply suggesting food prices could reach a top soon (due to lagging effects). Wheat prices, for example, have completely erased any “conflict premium” associated with the war in Ukraine. In the meantime, the price of other commodities such as corn or soybeans has moved rapidly downward.
